Accelerated growth in FY20 fuels momentum
FY20 results confirmed the rapid momentum building behind both group divisions. Legacy made particularly strong progress, on the back of more urgent need for owners of legacy assets to free up capital during 2020. Program Management is firmly on track, reporting strong growth in contracted GWP in FY20 and to the end of Q1 2021.For context, the ‘accelerated progress’ referred to in the results’ report is the result of RQIH’s decision to move quickly to capitalise upon opportunities thrown up by a disruptive year:
- that puts prospects for Legacy ahead of where we had anticipated. Demand for its solutions remains strong and it reports a pipeline of potential deals where it has exclusivity.
- Program Management is building fast and reported its first profit in FY20. This operationally geared business should be expected to generate significant cash profit as contracted Gross Written Premium (GWP) and fee income move into line.
The group’s ongoing transformation prompted a review of the financial strategy, as it seeks to establish a self-sustaining financial model that generates sufficient cash to finance both investment in the group, and progressive distributions, without further calls for external capital.
At this stage of development, we view 240p/share as fair value, using a sum of the parts for two distinct businesses and revenue profiles: as a fee business PM is valued at a multiple of pre-tax operating earnings, Legacy at a multiple of Tangible NAV, in line with specialty insurers. That is still well below industry peers and underplays the synergies inherent in their combination in one group.
Gallagher (Arthur J.) is a holding company. Through its subsidiaries, the company provides insurance brokerage, consulting and third party claims settlement and administration services to both domestic and international entities. The company's segments are: brokerage, which is primarily comprised of its retail and wholesale insurance brokerage operations; risk management, which provides contract claim settlement and administration services for enterprises and public entities that choose to self-insure their property/casualty coverages and for underwriting enterprises that choose to outsource their property/casualty claims departments; and corporate, which manages its clean energy and other investments.
Brown & Brown is an insurance agency, wholesale brokerage, insurance programs and service organization. The company's segments are: Retail, which provides a range of insurance products and services, and non-insurance risk-mitigating products; National Programs, which provides professional liability and related package products, a range of insurance products, and flood coverage, and targeted products and services; Wholesale Brokerage, which markets and sells excess and surplus commercial and personal lines insurance; and Services, which provides insurance-related services, including third-party claims administration and medical utilization management services, as well as Medicare Set-aside services.
Marsh & McLennan Companies is a holding company. Through its subsidiaries, the company provides clients advice and solutions in risk, strategy and people. The company provides analysis, advice and transactional capabilities to clients. The company conducts business through two segments: Risk and Insurance Services, which includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services; and Consulting, which includes health, wealth and career services and products, and other management, economic and brand consulting services.
Randall & Quilter Investment Holdings is a holding and investment company. Through its subsidiaries, Co. acts as owners and managers of insurance companies, live and in run-off, as underwriting managers for insurers, as participators and managers of Lloyd's syndicates, as purchasers of insurance receivables and as service providers to the non-life insurance market. Co.'s has 3 segments: insurance investments which acquires and assumes legacy portfolios, insurance debt and provides capital support to Lloyd's syndicates; insurance services which provides insurance related services; and underwriting management, which provides management to Lloyd's syndicates and operates underwriting entities.
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